Both Treasuries and MBS hit their best closing levels since May 2013 today as the global flight-to-safety continues.  Make no mistake that this move has been, and continues to be driven by Europe.  Oil prices are a temporary helper at best, and a byproduct of actual fundamentals at worst.  For now though, their movement has been synergistic enough to get lots of credit. 

Other factors include the fact that today is only the 2nd serious trading day of 2015, and we often see a flood of tradeflows come back into the market after the holidays.  Sometimes these add momentum to a previous trend, and other times (like now), they quickly get markets back in line with the trends that were in place before the holidays.

The most notable thing about the current rally is that it didn't follow that familiar pattern where trading levels correct aggressively back in the other direction.  True, there was a correction after European bond markets closed for the day, but it wasn't even a shadow of the pull-back experienced after October 15th's aggressive rally. 

Economic data was disregarded, which is useful to know as it confirms the focus is elsewhere.  Speaking of elsewhere, Europe will release a big inflation report tomorrow before domestic markets open.  It could easily set the tone and determine whether this rally continues.  Past precedent suggests a pull-back regardless, but other circumstances suggest that's not a given just yet.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 3.0
102-20 : +0-17
FNMA 3.5
105-09 : +0-12
FNMA 4.0
107-09 : +0-07
Treasuries
2 YR
0.6290 : -0.0360
10 YR
1.9380 : -0.0960
30 YR
2.4990 : -0.1040
Pricing as of 1/6/15 5:34PMEST
Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
2:50PM  :  ALERT ISSUED: Negative Reprice Risk Increasing
12:06PM  :  Well-Behaved Snowball Rally Into European Close
9:51AM  :  European Bond Markets Back With a Vengeance
MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Victor Burek  :  "peaks and valley...trend is lower, but as mg said, we will see some pull backs before going lower"
Matthew Graham  :  "The problem with the fix is that we won't know it without the benefit of hindsight."
Matthew Graham  :  "SM, even in the midst of longer term trends, there will be short term corrections. It's highly likely we see such a correction in the coming days, even if it's only brief."
Victor Burek  :  "be worried about when Europe is fixed"
Stephen Mitroka  :  "MG - is there anything out there that could reverse this market we are seeing? What should we be worried about? THIS IS CRAZINESS"
Andrew Russell  :  "that was my point you all elaborated on, the common theme I have seen over the years is the reversal over the next few days, just have your lock fingers ready and take it while it is there"
Hugh W. Page  :  "Don't forget sharp reversals are not uncommon in a market moving like this."
Jason York  :  "this movement is pretty fast, and when this typically happens, there will be a few brutal days the other way! Just be prepared and don't be greedy!"
Andrew Russell  :  "I would say, my .02, the prudent move is to build consistently on your purchase referral sources, while of course taking advantage of the bone the biz has thrown us with these low rates for refi clients, being diversified is always prudent in business"